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Mumbai, May 28 () The Reserve Bank on Thursday said it has imposed a penalty of Rs 5 crore on state-owned Bank of India for non-compliance with certain provisions, including those related with NPA. The central bank also imposed a penalty of Rs 1.2 crore on Karnataka Bank for non-compliance with NPA norms. In a statement, RBI said it has imposed a monetary penalty of Rs 5 crore on Bank of India (BoI) for non-compliance with "certain provisions of the directions issued by RBI on 'Income Recognition, Asset Classification and Provisioning pertaining to Advances - Divergence in NPA accounts', 'Opening of current accounts by banks – Need for discipline', and 'Classification and reporting of frauds'". Giving details, it said the statutory inspection of BoI with reference to its financial position as on March 31, 2017 and March 2018 and the risk assessment reports pertaining thereto revealed, inter-alia, non-compliance with the certain directions. A notice was issued to the bank in this regard. After considering the bank's reply to the notice, oral submissions made during the personal hearing and examination of additional submissions, RBI concluded that the charges of non-compliance with RBI directions warranted imposition of monetary penalty. The penalty on Karnataka Bank has been imposed for non-compliance with certain provisions of directions on 'Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - Divergence in NPA Accounts' and 'Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances'. RBI also imposed a penalty of Rs 30 lakh on Saraswat Co-operative Bank for non-compliance with directions on 'Income Recognition and Asset Classification (IRAC) norms.' In all three cases, action is based on the deficiencies in regulatory compliance, and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with customers, RBI said. NKD RVK

RBI imposes penalty on Bank of India, Karnataka Bank

Mumbai, Mar 13 () The Reserve Bank on Friday came out with regulatory guidelines for implementation of Indian Accounting Standards (Ind AS) by non-banking financial companies (NBFCs) and asset reconstruction companies (ARCs) while preparing their financial results. The guidelines, which are aimed at promoting high quality and consistent implementation of Ind AS as well as facilitate comparison and better supervision, will be applicable to NBFCs and ARCs for preparations of their financial results from FY20 onwards, RBI said in a notification. The guidelines mandate NBFCs/ARCs to put in place board-approved policies that clearly articulate and document their business models and portfolios. NBFCs/ARCs shall frame their policy for sales out of amortised cost business model portfolios and disclose the same in their notes to financial statements. "The RBI expects the board of directors to approve sound methodologies for computation of expected credit losses (ECL) that address policies, procedures and controls for assessing and measuring credit risk on all lending exposures, commensurate with the size, complexity and risk profile specific to the NBFC/ARC," the guidelines said. The audit committee of the board (ACB) will have to approve the classification of accounts that are due beyond 90 days but not treated as impaired, with the rationale for the same clearly documented. The number of such accounts and the total amount outstanding and the overdue amounts should be disclosed in the notes to the financial statements, it said. NBFCs/ ARCs shall hold impairment allowances as required by Ind AS, RBI said. NBFCs/ARCs shall also maintain the asset classification and compute provisions as per extant prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) including borrower/beneficiary wise classification, provisioning for standard as well as restructured assets and NPA ageing. "Where impairment allowance under Ind AS is lower than the provisioning required under IRACP, NBFCs/ARCs shall appropriate the difference from their net profit or loss after tax to a separate impairment reserve," the guidelines said. It said 12 month ECL allowances for financial instruments, that is where the credit risk has not increased significantly since initial recognition, will have to be included under general provisions and loss reserves in tier II capital within the limits specified by extant regulations. The guidelines also asked NBFCs/ARCs to educate their customers on the need to make payments in a timely manner. HV ABMABM

RBI issues guidelines for Ind AS implementation by NBFCs, ARCs

New Delhi, Feb 10 () The RBI extending the MSME loan restructuring scheme and allowing relaxation in asset classification for certain real-estate projects signify a gradual shift away from the regulator's earlier effort to enhance quality and transparency of asset classification by banks, Fitch Ratings said on Monday. There is a risk that such regulatory forbearance will perpetuate moral hazard, as it follows aggressive lending growth and risk-taking in certain sectors in five years to the financial year ended March 2019, the ratings agency said. "The Reserve Bank of India's (RBI) announcement of forbearance towards stressed sectors signifies a gradual shift away from the regulator's earlier effort to enhance the quality and transparency of asset classification in Indian banking system," Fitch Ratings said. Last week the RBI allowed restructuring of the borrower account of MSME by one more year till March 31, 2021. Finance Minister Nirmala Sitharaman in her budget speech had urged the RBI to extend the recast for small businesses and had also taken measures like a Rs 25,000 crore fund for stuck realty projects in her budget. Micro, small and medium enterprises contribute more than 28 per cent to the total GDP, more than 40 per cent to exports and employ about 11 crore people. Considering the importance of MSMEs in the Indian economy and for creating an enabling environment for the sector, a one-time restructuring of loans to MSMEs that were in default but 'standard' as on January 1, 2019, was permitted without an asset classification downgrade. Fitch said the RBI's move mark a further dilution of the regulator's drive to enhance loan recognition. "It is not clear at the moment whether this forbearance will be extended to non-bank financial institutions (NBFIs) as well, but we believe that the probability of this is high, considering the impact that the NBFI liquidity squeeze and a slowing economy have had on the MSME and real-estate sectors," it said. Fitch said in recent years, banks have preferred to lend to NBFIs, which lend heavily to the real estate and MSME sectors, as a way to deploy their excess liquidity, while limiting their own direct exposure to these areas. "Fitch believes that these extensions are only likely to defer asset-quality pressures unless there is a sustained improvement in macroeconomic conditions. Although we expect India's economic growth to pick up in the coming months, to 5.6 per cent in FY21 from 4.6 per cent in FY20, there are still risks to the country's economic outlook," Fitch said. It said Indian banks have a poor track record with restructuring and the RBI's asset-quality reviews in FY2016 and FY2018 found that a dominant share of loans restructured post-FY2012 had degraded into non-performing loans (NPLs). On the RBI's move to exempt cash reserve ratio cut against lending to specific sectors like auto, small businesses and housing, the agency said the move is aimed at improving monetary transmission as interest rates on the three products go down, but flagged concers on the same. "Most of these sectors have had above-average lending growth in the last few years, either directly or indirectly via non-banks, and could be at risk were the economy to slow," it said. The measure is unlikely to support sustainable credit growth until capitalisation improves meaningfully across banks, in particular among state-owned banks, which account for nearly two-thirds of the sector's assets, it added. JD AA MRMR

MSME restructuring extension signify RBI's shift in stance on asset quality, transparency: Fitch

(Eds: Adding details) Mumbai, Apr 17 () Virtually doubling the timeframe for recognising a loan as a non-performing asset (NPA), the Reserve Bank announced an "asset classification standstill" for March-May, giving one more benefit to borrowers hurt by the impact of the COVID-19 pandemic. However, lenders will have to set aside 10 per cent of the loan amount as provisions in cases where there have been deferments of payments, the central bank said. The RBI had on March 27 announced a 90-day moratorium on loan repayments for all loans because of the economic impact of the pandemic, as part of a slew of announcements to help protect different sections from the reverses due to the pandemic. "It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, i.e., there would be an asset classification standstill for all such accounts from March 1 to May 31," Governor Shaktikanta Das said in a televised video message. In other words, it will be 90 days after May 31 that an asset will be recognised as an NPA, giving the borrower much needed time to regularise an account which will be very helpful if she is hit by the economic hardships. In the case of non-bank lenders, they have also been given the flexibility under the prescribed accounting standards to consider such relief to their borrowers, Das said. Domestic credit rating agency Acuite Ratings and Research said that this measure effectively is an extension of the NPA period from 90 days to 180 days, but comes at a cost of banks' profitability as they will have to set aside 10 per cent as provision. "The banks and NBFCs also need to take higher provisioning charges for March and the June quarter, which will obviously hit their profitability further," it said. Das suggested that the move to set aside more money is driven by systemic safety considerations. "We are cognizant of the risk build-up in banks' balance sheets on account of firm-level stress and delays in recoveries. With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill," he said. Economic activity has come to a standstill during the period of the lockdown, with consequential lingering effects which have unambiguously affected the cash flows of households and businesses, he said. In a late evening circular, RBI said banks will have to make the provision on such assets at 5 per cent for the March quarter and the remaining 5 per cent for the June quarter. The provisions shall not be reckoned for arriving at net NPAs till they are adjusted against the actual provisioning requirements, it said. AA RVK

RBI exempts accounts with moratorium benefits from asset recognition norms for 90 days

New Delhi, Oct 10 (IANS) The Reserve Bank of India has urged the Supreme Court to lift the across-the-board stay on classification of non-performing asset (NPA) till further orders as it has huge implications for the banking system In a fresh affidavit filed in the apex court, the RBI said: "It is humbly submitted that this hon'able court had given an across-the-board stay on classification of any account as NPA till further orders. If the stay is not lifted immediately, it shall have huge implications for the banking system, apart from undermining the regulatory mandate of the Reserve Bank of India." On September 3, in a respite to stressed borrowers, the Supreme Court had directed that accounts not declared NPAs as of August 31 should not be classified as such until further orders. On October 3, in an affidavit, the Centre had informed the court that any account becoming non-performing even due to the bank's or any other delay need not suffer from being labelled as NPA. Justifying the lifting of the stay on NPAs, the RBI cited its July 2015 circular aimed at reflecting the true and fair position of the accounts of banks so that the financial assets (which are public assets) will be accurately reflected in the books of accounts of the lenders. "The classification of a loan account as NPA, based on the record of recovery, actually enables the lenders to follow the regulatory guidelines with regard to income recognition and provisioning. Every regulatory forbearance has its trade-offs in terms of adverse incentives and unintended consequences", said the RBI in the affidavit. "It is further prayed that the interim order dated September 4, 2020 restraining classification of accounts into Non-Performing Accounts in terms of the directions issued by the RBI may kindly be vacated with immediate effect," said the RBI. The Centre also emphasised that it is not possible to revise its decision to waive interest-on-interest for loans up to Rs 2 crore, wherein the government would bear the cost for MSME loans and personal loans. "This decision by the government to provide additional relief to a large segment of borrowers has addressed the primary prayers of the petitioners," the Centre said. On the aspect of sector-specific relief instead of a monolithic resolution framework sought by reals estate and power sectors, the RBI said such prayers deliberately obfuscate the fact that resolution framework gives complete discretion to the lending institutions and borrowers to arrive at resolution plans tailored to the specific requirements of sector subject. The RBI cited its September 7, circular, which provides for separate thresholds for 26 sectors, including power, real estate and construction. In respect of those sectors where the sector-specific thresholds have not been specified, lending institutions have been permitted to make their own internal assessments. The RBI said that sectors such as power and real estate were already stressed even before the coronavirus pandemic on account of various factors pertaining to sector-specific problems. "Nonetheless, it is submitted that the travails of the realty sector cannot be solved through banking regulations. The banking regulations of the RBI cannot substitute the redressal of structural problems of the real estate sector," the affidavit read. The RBI response came after the top court earlier this week told the government that its response did not contain "necessary details" and asked the Centre and the RBI to bring on record the KV Kamath committee recommendations on debt restructuring. (Sumit Saxena can be contacted at sumit.s@ians.in) --IANS ss/tsb

Vacate stay on accounts' classification as NPAs, RBI urges SC

Mumbai, Apr 17 () The Reserve Bank on Friday announced an asset classification standstill for three months to May 31 but asked banks to set aside additional money as provisions against loan accounts where the 90-day moratorium on repayments has been utilised.On March 27, it had given term-loan borrowers the option of a moratorium on loan repayments for 90 days for the money due in March, April and May with the assurance that it will not affect credit scores.Addressing the media in a video message on Friday, Das said that in accounts where moratoriums or deferments are being utilised, the asset recognition norms, under which an account is classified as a non performing asset (NPA) after 90 days of non-payment, will not apply."It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, i.e., there would be an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020," he said.However, for such cases, the RBI asked banks to maintain a higher provision of 10 per cent spread over the March and June quarters with an assurance to adjust the provisions later.Das explained that such a requirement of setting aside more money, which would typically dent profitability or hold up capital, is necessary from a safety perspective.He said the decision has been taken "with the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges"."...we are cognizant of the risk build-up in banks' balance sheets on account of firm-level stress and delays in recoveries," the governor added.Das said the 10 per cent provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts.It can be noted that generally bank set aside a much lower amount as standard asset provisioning which differs as per the type of loan and is generally less than 1 per cent of the outstanding. When an asset is recognised as a NPA, they are required to increase the provisioning to over 15 per cent and keep taking it higher as per the movement in its resolution."Necessary clarity has been given that the moratorium period will not lead to a spurt in NPAs in the system and importantly, will allow the borrowers across retail, SME and corporates availing the moratorium to access additional funding from banks or NBFCs," Suman Chowdhury, the chief analytical officer at Acuite Ratings and Research, said.He added that while this measure effectively means an extension of the NPA period from 90 days to 180 days, banks will have to provide extra through the increased provisioning. Das also said that non bank lenders have flexibility under the prescribed accounting standards to consider such relief to their borrowers. While the additional provisioning can be a dent to banks' performance, there were a host of positive measures for the lenders in the slew of announcements like a relaxation on liquidity coverage ratio.The BSE's sectoral index bankex was up 5.12 per cent at 23,304.63. AA MKJ

In relief to borrowers and banks, RBI exempts accounts with moratorium benefits from asset recognition norms for 90 days

Mumbai, Feb 6 () In a bid to increase lending to MSME as well as to auto and home segment, Reserve Bank on Thursday tweaked maintenance of cash reserve ratio (CRR) norms by providing relaxation in calculation of total deposits. The move will encourage lending towards these targeted sectors having multiplier effect by banks as they will get exemption in CRR over incremental lending. This exemption window is available till July 2020. CRR is the percentage of total deposits that bank mandatorily park with the apex bank. It stands at 4 per cent of a bank's total deposit. Alongside sustained efforts to improve monetary transmission, the Reserve Bank is actively engaged in revitalising the flow of bank credit to productive sectors to support growth, as per the Statement on Developmental and Regulatory Policies released by RBI. "As a part of this, it has now been decided that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) for maintenance of CRR," it said. This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020, it said. To give boost to the real estate sector, RBI said, it has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. "This would complement the initiatives taken by the Government of India in the real estate sector. The detailed instructions will be issued shortly," it said. Observing that MSME sector plays an important role in the growth of the Indian economy, RBI said the restructuring of the borrower account has been extended by further one year to March 31, 2021. Micro, Small and Medium Enterprises (MSMEs) contributes over 28 per cent of the GDP, more than 40 per cent of exports and employs about 11 crore people. Considering the importance of MSMEs in the Indian economy and for creating an enabling environment for the sector, a one-time restructuring of loans to MSMEs that were in default but 'standard' as on January 1, 2019, was permitted without an asset classification downgrade. The restructuring of the borrower account was to be implemented by March 31, 2020, it said, adding, the scheme has provided relief to a large number of MSMEs. "As the process of formalisation of the MSME sector has a positive impact on financial stability and this process is still underway, it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020, it said. The restructuring under the scheme has to be implemented latest by December 31, 2020, it said. "This will benefit the eligible MSME entities which could not be restructured under the provisions of the circular dated January 1, 2019 as also the MSME entities which have become stressed thereafter. It is re-emphasised that this is a one-time regulatory dispensation. Detailed guidelines, in this regard, will be issued shortly," it said. Post transfer of regulation of Housing Finance Companies (HFCs) from National Housing Bank (NHB) to Reserve Bank with effect from August 9, 2019, it was decided that Reserve Bank will carry out a review of the extant regulatory framework applicable to HFCs and issue revised regulations in due course, and till such time HFCs shall continue to comply with the directions and instructions issued by NHB. "It is proposed to place the draft revised regulations on the Bank's website by the end of this month, for public comments," it said. DP DRR

RBI announces incentive for lending to MSME, home, auto sectors

New Delhi, Jun 22 () Dhanlaxmi Bank on Monday reported 90.5 per cent decline in net profit at Rs 2.60 crore for March quarter 2019-20 due to higher provisions for bad loans and contingencies. The bank had posted a profit of Rs 27.61 crore in January-March period of the preceding financial year. Income during the quarter under review rose to Rs 280.98 crore from Rs 268.97 crore in the year-ago same period, the bank said in a regulatory filing. The bank's provisions for bad loans and contingencies were raised substantially to Rs 56.89 crore during March quarter as against Rs 16.27 crore parked aside for the year-ago same period. The lender made an ad hoc provision of Rs 3.94 crore during the quarter towards the salary revision due from November 1, 2017, under 'Provisions and Contingencies', it said. In 2019-20, Dhanlaxmi Bank's net profit grew multi-fold to Rs 65.78 crore from Rs 11.67 crore in 2018-19. Income rose to Rs 1,100.44 crore from Rs 1,024.22 crore. On the asset front, the bank showed improvement with gross non-performing assets (NPAs) falling to 5.90 per cent of the gross advances as on March 31, 2020 from 7.47 per cent by March-end last year. In absolute terms, gross NPAs were Rs 401.22 crore, down from Rs 495.84 crore in the year-ago same period. Likewise, net NPAs or bad loans too came down to 1.55 per cent (Rs 100.94 crore) from 2.41 per cent (Rs 151.71 crore). The private sector lender said it exercised the option of moving to lower tax slab provided by the government in October 2019 and re-measured its deferred tax assets (DTA) as on March 31, 2020 and had a write-back of Rs 19.70 crore towards the same. Dhanlaxmi Bank said that no divergence was observed by RBI for 2018-19 in respect of bank's asset classification and provisioning. "Hence the bank has not exceeded the limit specified... on Divergence in the Asset Classification and Provisioning," it said. On the COVID-19 impact, the lender said the extent to which the pandemic will impact the bank's future results will depend on related developments, which remain highly uncertain. "Major challenges for the bank would arise from extended working capital cycle and dwindling cash flows. Despite these conditions, there is not likely to be any significant impact on the liquidity position of the bank," it said. Further, it said that in accordance with RBI mandated moratorium facility to borrowers and the required provisions, it made the entire 10 per cent provision amounting to Rs 37.88 crore in March quarter 2020. Provision coverage ratio as on March 31, 2020 was 89.87 per cent, it said. Dhanlaxmi Bank stock closed 3.72 per cent up at Rs 16.16 on BSE. KPM ANU ANU

Dhanlaxmi Bank Q4 profit falls over 90 pc at Rs 3 cr

<ul><li>In the second quarter of 2020, equity funds posted their best quarterly performance since the fourth quarter of 1999, according to data from <keyword id="7003162" type="UNKNOWN" weightage="60" keywordseo="Refinitiv">Refinitiv</keyword> <keyword id="127657" type="COMPANY" weightage="60" keywordseo="Lipper">Lipper</keyword>.</li><li>The average equity fund returned 20.22% in the quarter, and Lipper's US Diversified Equity Funds macro-classification returned 23.52%, outperforming six other major equity groups. </li><li>US investors pushed the funds to the blockbuster performance "as they cheered economic reopenings, the Federal Reserve Board's 'whatever it takes' mantra, and improvements in the U.S. unemployment rate," wrote Tom Roseen, head of Lipper's Research Services, in a note. </li><li><a href="https://www.businessinsider.com/">Read more on Business Insider. </a></li></ul><keyword id="547761" type="PERSON" weightage="60" keywordseo="Stock-funds">Stock funds</keyword> are partying like it's 1999. In the second quarter of 2020, equity funds posted their best quarterly performance since the fourth quarter of 1999, according to data from Refinitiv Lipper. The average equity fund returned 20.22% in the quarter, and Lipper's US Diversified Equity Funds macro-classification returned 23.52%, outperforming six other major equity groups and posting its best quarterly performance since at least 1979. US investors pushed the funds to the blockbuster performance "as they cheered economic reopenings, the Federal Reserve Board's 'whatever it takes' mantra, and improvements in the U.S. unemployment rate," wrote Tom Roseen, head of Lipper's Research Services, in a note. US <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> also surged in the second quarter as positive economic data outweighed climbing new case numbers. The Dow Jones industrial average gained 18% in the three-month period from April through June, the index's best <a href="https://markets.businessinsider.com/news/stocks/stock-market-news-today-dow-best-quarter-1987-economic-data-2020-6-1029356198">quarterly return since 1987</a>.Meanwhile, the S&amp;P 500 saw its best gain since 1998 during the period, while the Nasdaq capped off its best quarter since 2001.Read more: <a href="https://www.businessinsider.com/highland-capital-affiliates-nexpoint-receive-ppp-loans-2020-7">5 firms linked to Texas multimillionaire and Highland Capital founder James Dondero got approved for as much as $8 million in PPP loans</a>Investors embraced risky assets during the quarter, according to Roseen. The USDE Funds macro-classification was supported by strong quarterly performances in equity leverage funds, which gained more than 43%, and small-cap growth funds, which returned nearly 33% in the three-month stretch. It was a solid quarter all around, with 98 of Lipper's 103 equity and mixed-equity classifications posting positive returns.

Stock funds posted their best return since 1999 in the 2nd quarter as the market rallied

Mumbai, Feb 13 () The Reserve Bank of India's recent asset recognition norms that allows banks not to treat real estate loans as restructured for one year is credit negative for Indian banks, a report by Moody's said. Last week, the RBI harmonised guidelines for deferment of date of commencement of commercial operations (DCCO) for projects in non-infrastructure and commercial real estate (CRE) sectors. It said the revisions of the date of DCCO and consequential shift in repayment schedule for equal or shorter duration will not be treated as restructuring provided the revised DCCO falls within the period of one year from the original DCCO stipulated at the time of financial closure for CRE projects. In case of CRE projects delayed for reasons beyond the control of promoter, banks may restructure them by way of revision of DCCO up to another one year and retain the 'standard' asset classification if the account continues to be serviced, the RBI said. "The measure is credit negative for Indian banks because it will defer the recognition of such loans from the real estate sector, and by extension appropriate loss provisioning against them," Moody's said. It said property developers will have an additional year to address their funding issues before the banks have to classify a loan as restructured. "While this will alleviate near-term asset quality risk to the banks from the real estate sector, it will not address the credit issues facing real estate developers," it said. Developers are facing funding challenges because nonbank financial institutions (NBFIs), the key lenders to the sector, are facing funding challenges of their own. Tight funding conditions are straining developers' ability to complete projects, and by extension their solvency, the report said. HV MRMR

RBI new asset recognition norms credit negative for banks: Moody's

Mumbai, June 8 () The Reserve Bank on Monday proposed a comprehensive framework for sale of loan exposures, which could be standard, sub-standard or non-performing assets (NPAs), as part of the overall exercise to deepen the market for lending. Loan sales may be resorted to by lenders for any reasons ranging from strategic sales to rebalance their exposures or as a means to achieve resolution of stressed assets by extinguishing the exposures. Presently, the guidelines for sale of loan exposures, both standard as well as stressed exposures, are spread across various circulars of the RBI. "A dynamic secondary market for bank loans will also ensure proper discovery of credit risk pricing associated with each exposure and will be useful as a leading indicator for impending stress, if any, provided that the volumes are sufficiently large," the RBI said while issuing the comprehensive draft framework for sale of loan exposure. The stakeholders can send their comments on the draft framework to the RBI by June 30. Lenders, the RBI said, resort to loan sales for reasons ranging from strategic sales to rebalance their exposures or as a means to achieve resolution of stressed assets by extinguishing the exposures. The draft guideline proposed by the RBI for sale of loan exposures deals with various issues like asset classification of the loan to be transferred, nature of entity purchasing loan and mode of transfer of loans. As per the draft framework, standard assets would be allowed to be sold by lenders through assignment, novation or a loan participation contract (either funded participation or risk participation). The stressed assets, however, would be allowed to be sold only through assignment or novation only, the draft said adding, "stressed assets may be sold to any entity that is permitted to take on loan exposures by its statutory or regulatory framework". The draft lays down norms for sale of NPAs to Asset Reconstruction Companies (ARCs) also buy back of NPAs in case the ARCs manage to turn them into standard assets. The draft also proposes to do away with the requirement of Minimum Retention Requirement (MRR) for sale of loans by lenders. A dynamic secondary market for bank loans will also ensure proper discovery of credit risk pricing associated with each exposure and will be useful as a leading indicator for impending stress, if any, provided that the volumes are sufficiently large, the draft said. NKD CS MKJ MKJ

RBI proposes comprehensive framework for sale of loans

Mumbai, Apr 17 () The Reserve Bank on Friday announced a slew of regulatory and liquidity measures for non-banking finance companies (NBFCs), including Rs 50,000 crore of targeted long-term repo operations (TLTRO 2.0) which will focus purely on providing funding to the sector. RBI also gave NBFCs flexibility for an 'asset classification standstill' period from March 1, 2020 to May 31, 2020 for all their borrowers who have availed the three-month repayment moratorium announced earlier. The measures are aimed at providing relief to NBFCs that have been facing challenges due to COVID-19 related disruptions. "It has been decided to conduct targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of Rs 50,000 crore, to begin with, in tranches of appropriate sizes," Governor Shaktikanta Das said while addressing media through video conferencing. RBI said the funds availed by banks under TLTRO 2.0 should be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and microfinance institutions (MFIs). These investments have to be made within one month of the availment of liquidity from the RBI and it will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio, Das said. Also, exposures under this facility will also not be reckoned under the large exposure framework. RBI said in respect to accounts for which lending institutions have decided to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, that is there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020. "NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers," the Governor said. The central bank also decided to provide special refinance facilities for a total amount of Rs 50,000 crore to Nabard, Sidbi and NHB to enable them to meet sectoral credit needs. "This will comprise Rs 25,000 crore to Nabard for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); Rs 15,000 crore to Sidbi for on-lending/refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies (HFCs)," Das said. These institutions, known as All India Financial Institutions (AIFIs), play an important role in meeting the long-term funding requirements of agriculture and the rural sector, small industries, housing finance companies, NBFCs and MFIs. RBI also extended the resolution plan period for NBFCs by 90 days from the current 210 days. Under RBI's prudential framework of resolution of stressed assets dated June 7, 2019, in the case of large accounts under default, banks, non-deposit taking systemically important NBFCs and deposit taking NBFCs are currently required to hold an additional provision of 20 per cent if a resolution plan has not been implemented within 210 days from the date of such default. "Recognizing the challenges to resolution of stressed assets in the current volatile environment, it has been decided that the period for resolution plan shall be extended by 90 days," Das said. The central bank also allowed NBFC players to extend the date for commencement for commercial operations (DCCO) for loans given commercial real estate by additional one year without considering it as restructuring. Currently, RBI permits banks to extend the DCCO in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring. "The move will provide relief to NBFCs as well as the real estate sector," he said. HV ABMABM

RBI comes to NBFCs' rescue; boosts cash availability, eases bad loan norms

New Delhi, Jun 24 () State-owned Canara Bank on Wednesday reported widening of its standalone net loss to Rs 3,259.33 crore for the fourth quarter ended March 2020. The bank had registered a net loss of Rs 551.53 crore during the corresponding January-March 2019 quarter. However, income on a standalone basis during January-March rose to Rs 14,222.39 crore, compared with Rs 14,000.43 crore in the year-ago period, Canara Bank said in a regulatory filing. The lender made a huge provisioning of Rs 5,375.38 crore for the March 2020 quarter, even as it was lower than the Rs 5,523.50 crore parked aside for corresponding period of 2018-19. For the full year 2019-20, there was a loss of Rs 2,235.72 crore during 2019-20. The public sector bank had posted a net profit of Rs 347.02 crore in 2018-19. On asset quality, gross non-performing assets (NPAs) continued to remain at an elevated level of 8.21 per cent at the end of March 2020, slightly better than 8.83 per cent by the end of March 2019. In value terms, the gross NPAs or bad loans of the bank stood at Rs 37,041.15 crore as on March 31, 2020, vis-a-vis Rs 39,224.12 crore in the year-ago period. Net NPAs were, however, trimmed substantially to 4.22 per cent (Rs 18,250.95 crore) from 5.37 per cent (Rs 22,955.11 crore). Provision coverage ratio as on March 31, 2020, stood at 75.86 per cent, compared with 70.97 per cent as on December 31, 2019, and 68.13 per cent as on March 31, 2019, it said. The amalgamation of Syndicate Bank into Canara Bank was effected on April 1, 2020. In this connection, the Reserve Bank of India, with a view to obviating future build-up of stresses in the bank, advised Canara Bank to ensure a harmonisation provision as on March 31, 2020, with respect to the impact of divergence in asset classification across both the banks, it said. Accordingly, based on the harmonisation process carried out by Canara Bank, the bank made the changes in asset classification and provisioning as per extant norms as at the year-end. "The harmonisation process as above has resulted in increase in gross NPA by Rs 532.63 crore and increase in NPA provision by Rs 340 crore during the year ended on March 31, 2020," Canara Bank said. Further, the Bengaluru-headquartered lender said it has availed option for deferment of provision in respect of frauds reported for Rs 2,349.59 crore requiring additional provision of Rs 1,989.26 crore in terms of option available as per the RBI circular. Accordingly, an amount of Rs 497.31 crore has been charged to profit and loss account and an amount of Rs 1,491.95 crore have been charged to reserves and deferred for adjustment in subsequent quarters, it added. On COVID-19, it said that due to lockdown impact on economy, the situation continues to be uncertain and the bank is evaluating the situation on an ongoing basis. "The major identified challenges for the bank would arise from eroding cash flows and extended capital cycles. The bank is gearing itself on all the fronts to meet these challenges. The management believes that no adjustments are required in the financial results as it does not significantly impact the current financial year," it said. Despite these events and conditions, there would not be any significant impact on the bank's results in future and going concern assumptions as at presently made, it added. Shares of Canara Bank on Wednesday fell 3.95 per cent to Rs 109.45 apiece on the BSE. KPM HRS

Canara Bank's standalone net loss widens to Rs 3,259 cr in Mar quarter

Mumbai, Apr 17 () The reduction in reverse repo rate by 25 basis points to 3.75 per cent by the Reserve Bank is a significant step but it is important that banks should increase their risk appetite, say economists and analysts. The Reserve Bank of India on Friday announced a 25 basis points reduction in reverse repo to 3.75 per cent from 4 per cent in order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy. "The reduction of reverse repo is significant but it needs to be seen if the flow to the private sector actually increases," Care Ratings Chief Economist Madan Sabnavis said. DBS Bank India Economist Radhika Rao said the reduction in the reverse repo rate is meant to prod banks to consider lending activity rather than park funds with the central bank. "Given the still sizeable funds that is being parked with the central bank under the reverse repo operations even after the 90 basis points cut in March, points to the limited credit and risk appetite of financial institutions," Rao said, while cautioning that a further reduction might disincentives banks to utilise the reverse repo window. SBI's Group Chief Economic Advisor Soumya Kanti Ghosh said the RBI has excluded the accounts availing moratorium from the 90-day NPA norm, thus providing a breather to banks as well as customers. "However, given the working capital challenges it is advisable for the RBI now to relook at the 90-day norm," he said. Ghosh said once an account is classified NPA, the borrower will not be able to raise funds from any other lender. "In the current circumstances the only way to save the economy and the financial system seems to be a relaxation of the IRAC norms i.e extending the 90-day schedule to 180 days," he said. Ghosh, however, said this relaxation should be given along with a well laid out calendar of returning to the current norm of 90 days in the next two years, by which time hopefully the Covid-19 crisis would have subsided. RBI also announced targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of Rs 50,000 crore, to begin with, in tranches of appropriate sizes. The funds availed under this will have to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and midsized NBFCs and MFIs. KPMG India Partner and Head (CFO Advisory) Sai Venkateshwaran said "the TLTRO 2.0 for a total of Rs 50,000 crores, will provide some of the much needed liquidity for NBFCs, that have been faced with a significant ALM mismatch as they haven't benefited from the grant of moratorium announced by RBI earlier." RBI also announced providing special refinance facilities for a total amount of Rs 50,000 crore to Nabard, Sidbi and NHB to enable them to meet sectoral credit needs. Crisil Ratings Senior Director Krishnan Sitaraman said the twin funding measures announced by RBI will definitely provide some relief to NBFCs / HFCs / MFIs who have been providing moratorium on their loans to borrowers but were facing uncertainty in obtaining moratorium on their bank loans. "At the same time the fact that no formal announcement was made on applicability of bank loan moratorium to NBFCs would be a dampener for them," he said. According to EY India's Economist and Chief Policy Advisor D K Srivastava, the two measures -- reduction in reverse repo and increase in the state governments' WMA limits by 60 per cent of the original limit -- would facilitate increase in economic activities as the lockdown is progressively eased. RBI further said in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, that is there would be an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020. "With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020," RBI said. According to Icra Ratings Senior Vice President and Group Head (financial sector) Karthik Srinivasan, the proposal for 10 per cent provisions on the accounts under the standstill on asset classification because of moratorium is likely to significantly increase the credit provisions for the banks. "With an estimate of 3-4 per cent of the bank credit being in overdue category, i.e. SMA 1 and SMA2, which currently requires provision of only 0.4 per cent, the provisioning requirements of banks can increase by Rs 300-400 billion because of the proposed regulations," he said. Deloitte India's Economist Rumki Majumdar said the ability to grant relaxed NPA classification to borrowers and excluding NPA classification from the moratorium period will encourage NBFCs to lend to MSMEs without worrying about the impact such lending may have on their NPAs, which have been high. According to Covestro India's Head of Finance Avinash Bagdi, the bold steps taken by RBI to ensure smooth functioning of banks and financial institutions will help the country to prevent the economic slowdown curve from steepening. HV ABMABM

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